PRODUCTION MANAGEMENT (PAY BACK PERIOD)

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For this one, we are going straight to the formula:

Pay Back Period:

P=       I____

   L-E+q (L=Z)

Where:

P       =        Pay Back Period

I         =        Investment

L        =        Labour

E        =        maintenance cost

Q       =        Fractional Speed up/slow down

Z        =        Annual Depreciation

ILLUSTRATION:

Ali Kai Juwa  Company Limited is considering using a Robot to spray paint inside panels of its tape drives.

Given the following information, should the company make the investment?  What will be the Pay Back Period of the return on investment?

Cost of Robot & Accessories N50,000, the  cost of labour is N60,000( two workers at 20,000 each – working one of two shift), overhead is N10,000.  Annual maintenance cost N9,600 (N2 per house multiply by 4,800 per hours per year).  A Robot spray panting work about 150% faster than a human.  The annual deprecation of the Robot is N10,000. 

SOLUTION:

Where:

I         =        50,000

L        =        60,000

E        =        9,600

Q       =        1.50

Z        =        10,000

P       =                                50,000______________

                   60,000 – 9,600+1.5 (60,000 + 10,000)

P       =                                50,000_______

                               50,400+1.5 (70,000)

P       =                                50,000____

                                 50,400 +150,000

P       =                                50,000____

                                         155,500

P       =                 0.32 years/months